Grantor Trust - What is It?

Rocco Beatrice

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The purpose of a trust is to create an “artificial legal person" to protect, hold, and manage your private wealth for the benefit of your heirs. - As in any contract, someone must initiate the contract (grantor or trustee). So the grantor trust is simply someone who has initiated the trust. Read below for what is a non-grantor trust. - The contract (trust agreement) must specify the who, what, where, when, why, and other conditions. - Finally, the contract is for the benefit of someone or something. In other words, the beneficiaries could be the wife, children, grandchildren, church, other charitable organizations, etc.


The concept of a trust was first used in Anglo Saxon times and is contractual arrangement whereby property is transferred from one person (the grantor) to another person or corporate body (the trustee) to hold the property for the benefit of a specified list or class of persons (the beneficiaries).

Although a trust can be created solely by verbal agreement it is normal for a written document to be prepared which evidences the creation of the trust (the trust deed) which sets out the terms and conditions upon which the trust assets are held by the trustees and outlines the rights of the beneficiaries. In essence, a trust is not dissimilar to a will except that assets are transferred to trustees during lifetime rather than those assets being transferred to executors on death. The trust deed is analogous to the deed of will.


1. Grantor
2. Trustee
3. Beneficiaries


The grantor in a trust is the person with the bucks. In other words, the grantor of a trust contract is the owner of the asset(s) which could be any asset from personal residential real estate to stock accounts to business or partnership assets and anything else of monetary value. The grantor's motivation is to get asset(s) out of his name for either some or all of the following:

- Asset protection/wealth preservation
- Reduce potential frivolous lawsuits
- Elimination of the “probate jail process" (see definition, below)
- Elimination of estate taxes
- To gain some tax benefit or some other tax deferral benefit

If the grantor initiates the trust (contract), it’s called a grantor trust; otherwise it’s called a non-grantor trust. To me, it’s just legal garbage so lawyers can charge you more.

If the grantor wants to retain certain control over his asset(s), it’s called a revocable trust; otherwise, it’s an irrevocable trust.

Revocable trusts and irrevocable trusts have significant asset protection and tax differences. One can think of a revocable trust like the kid next door that brings the ball to play basketball with the other kids. Everything is fine, as long as he makes the rules, and he makes the rules as he goes along. If you don’t agree, he takes the ball and goes home. The ball game is over. In the revocable trust, he has control and hence the name “revocable. "


Since the grantor retains control in the living revocable trust, it can destroy your estate in the event of a lawsuit, serious illness or elderly care. The living revocable trust is also known as the living trust. From the grantor's perspective, the sole purpose of the living revocable trust is to eliminate the probate process.

- Assets in a trust, avoids probate
- Assets NOT in a trust goes to probate with or without a will

However, the grantor may or may not realize the living revocable trust is outright dangerous for asset protection, wealth preservation, and estate tax elimination. The living trust is obsolete for assets greater than $675,000. With the living trust the grantor (i. e. owner of the assets) retains significant power over his wealth and will not insulate assets from the lawsuit explosion. There’s absolutely no tax benefit, no asset protection and no wealth preservation benefits with the living revocable trust to the grantor. I do not recommend the living revocable trust for the grantor.

Personally, I think the living revocable trust is a sham perpetrated on the grantor by shameless professionals out to extract more than just one fee. Every time the grantor needs or wishes to change the trust deed, he needs to speak with his lawyer. The lawyer just garnered another fee. So I recommend to my clients, “Don't just walk. Run!"


Various tax proposals are being bandied about, including House Ways and Means Chairman Bill Archer who says that he's “pushing" to “gradually phase out" the death tax within the next 10 years. “Death by itself should not trigger a tax" says Chairman Archer. Currently, estate taxes vary from 37% to 55%. Only Japan has a higher rate of 70%. Germany takes a maximum of 40%, while Australia and Canada, take nothing.

When you add up your federal, state, probate, legal fees, accounting fees, appraisal fees, administrative and executor fees, and every other fee, it could easily cost you 70 to 80% of your estate. You can avoid these unwanted results with the Ultra Trust® the Medallion Trust®.

NOTE: The new 2001 tax phase-in for estate taxes, changes absolutely nothing. The estate tax is the only voluntary tax. The new laws have added confusion. You can avoid the voluntary estate tax by simply engineering an irrevocable trust.

Author BIO - Rocco Beatrice, CPA, MST, MBA
Award-winning estate planning & trust expert
MS - Taxation, Master of Science Taxation
MBA - Management / Taxation
BSBA - Management / Accounting
CPA - Certified Public Accountant
Asset Protection: Irrevocable Trust
Trustee of Trusts
71 Commercial Street #150, Boston, MA 02109
tel: +1.508.429.0011 fax: +1.508.429.3034


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